Employers and business organisations had mixed reactions to today's pensions bill proposals to phase out the default retirement age (DRA), which means employers can no longer force staff to retire at age 65.

The rule change, which is phased in from 6 April and comes into force from 1 October, means employers will have to base their decisions of when an employee should stop work on their performance rather than their age.

TUC general secretary Brendan Barber said: "This will stop employers from dismissing people on an arbitrary basis just because they have reached 65. Employees should be judged on their ability to do the job, not their age."

But John Cridland, CBI director general designate, said the government's decision to scrap the DRA leaves businesses with a number of difficult practical issues. "The impact on employers, especially smaller ones, will be considerable," he said. "There is not enough clarity for employers on how to deal with difficult questions on performance. Less than three months is not enough time for businesses to put in place new procedures. The outcome will be more unpleasant and costly legal action.

"Employers accept that more people will want to work beyond 65 as the population ages, but the government has not recognised the fundamental question, which is how should employers manage retirement on the basis of a performance appraisal. This will be particularly acute in physically demanding sectors."

Cridland added that the majority of respondents to the government's consultation had concerns about the adequacy of existing employment law and about the timescale for the removal of the DRA.

"While it is helpful that group insurance products are being excluded from age discrimination coverage, we now look to the government's employment law review to help businesses, especially smaller ones, to deal with the practical implications of the decision to scrap the DRA. The law of unfair dismissal also needs to be revised and simplified," he said.

Paul Mander, head of the employment department at Dawsons, said: "The current system makes it easy for employers to know where they stand and what measures they have to implement to retire someone without falling foul of the law. Scrapping the DRA will make it harder for businesses to deal with succession issues, which is likely to lead to bottlenecks. It could also lead to employers finding themselves being sued for unfair dismissal.

"Employers will now have to justify objectively any form of retirement age and may find it extremely difficult or prohibitively expensive to continue to provide certain benefits such as health or life insurance for employees beyond the age of 65. Any employees near the end of their careers may need to be subject to detailed performance reviews rather than the employer having a gentler option available."

The Institute of Directors also criticised the move claiming it will remove the mechanism that gives employers flexibility in managing their workforce.

Unfounded fears

But Chris Ball, chief executive of TAEN - The Age and Employment Network, said many businesses had already voluntarily left the DRA behind, and those now facing workforce problems arising from its abolition only had themselves to blame.

Dianah Worman, diversity adviser at the CIPD, said: "Employers should be looking at issues such as when people work, how long people work for, where people do their work, and even the possibility of redeploying them to other roles. They've got to think much more creatively."

Ball said many of the fears expressed by the CBI and other employer bodies were unfounded. "I think we've got to debunk some of the myths. The idea, for example, that you can no longer dismiss someone whose failing competency gives rise to doubts about whether they can properly do the job is nonsense."

Both TAEN and the CIPD said they hoped the abolition of the DRA would encourage employers to have sensible and mature discussions with people about their career and work expectations throughout their working lives.

"From a corporate perspective, the critical thing will be for line managers to receive the support they need to fully evaluate the needs of their workforces," Worman said.

Ball said the recent age discrimination case won by television presenter Miriam O'Reilly against the BBC has highlighted the need for employers to be age aware. "Age awareness training is something many employers are going to need to avoid silly mistakes like the BBC made," he said. "If they had only had a modicum of advice the BBC would surely have avoided that situation."

Charlie Mullins, managing director of Pimlico Plumbers, which employs many older staff, including an employee of 104, said the decision was great news for companies who are prepared to employ older workers. "65 isn't old anymore, so why do away with skilled workers? Funnily enough, my PA is 68 and used to work for the government but was told to leave a few years ago.

"Retirement should be optional. If someone can afford to retire, let them. But most people these days simply can't afford to stop working at 65. This should have been introduced much earlier – the sooner the better in my book. We have lots of skilled plumbers in their late-50s who need to, and want to, work longer than age 65. There is no substitute for experience."